Saving Money and Reducing Debt

Category Archive: Debt Reduction

Whew! We have had a busy few months – but I’m back with an update on our progress to payoff our mortgage. For those new to the site –

We have a fixed, conventional, fifteen-year mortgage. Our goal is to pay it off in less than 10 years. Our progress for the first five years was decent – and we managed to reduce the length of our mortgage by 7 months!

I use a simple pie-chart to track our progress – and post our updates here at No Credit Needed.

Having a visualization keeps us motivated!

Here’s a chart with details for our current progress –

The percentages above represent the amount of our mortgage we have paid – 30.74% – and the amount we still owe – 69.26%.

Each month, we make our scheduled mortgage payment, plus an additional principal-only payment.

Some months, we make more than one principal-only payment!

This chart doesn’t represent our entire equity – It represents that amount we still owe on our mortgage.

We have reduced the length of our 15-year mortgage by 8 months!

I have a plan in place to payoff the rest of our mortgage in 60 months – that’s 5 years. It will take a bit of sacrifice and determination, but that’s our stretch-goal.

Each month – we followed the debt snowball list – and made minimum monthly payments to all of our creditors.

We would then send an extra, principal-only payment to the first account on the list.

With our budgeted-for monthly payment and extra payment accounted for – the fun would begin. We would look for ways to save money – and at the end of the week, we would send a micro-payment to the first account on the debt snowball list.

Very quickly, we began to erase our credit card balances. The micro-payments began to add up – to the point where we were applying more than twice what we had an anticipated, each month, towards debt reduction.

Long-term readers will remember that we managed to pay off our credit card debt in less than a year. Using micro-payments really worked for us. We now use the same strategy to fund our savings and retirement accounts.

Side-notes:

Instead of making micro-payments to our mortgage company – we make micro-deposits to our savings account. At the end of the month, we then send a single, principle-only payment.

The micro-deposit strategy avoids any issues with companies that limit the number of payments allowed during a particular billing cycle.

Using micro-payments is often referred to as snowflaking – a term I first heard from a fellow personal finance blogger. Since then, several others have written about snowflaking, snowflakes, and the process of using snowflakes to get out of debt. Check out their articles for more information about the power of micro-payments. Blessings.

Paying off that first account is an important milestone. There’s a tremendous feeling of satisfaction which accompanies the completion of any worthy goal. Take a while to enjoy the success – and then get pumped to move on to the next step in your plan.

Before you move too fast, however, check one thing – the next monthly statement from your credit card company. You may be in for a surprise.

Even though you paid your balance – in full – you may still owe some residual interest.

Most companies charge interest based on your average daily balance – so while your current balance may read zero – the interest calculation is based on the average of the balance, throughout the month. You will need to pay this interest, prior to your next statement.

When faced with this residual interest charge, I contacted my credit card company. The entire conversation took less than 2 minutes and the company waived the interest charge! I have found that contacting them via the “chat now” feature is really effective and saves a lot of time.

Side note: Contacting the credit card company worked for me. Each and every financial situation is unique. I’m sure that various credit card companies have different policies for different cards, individuals, and circumstances.

Even after hitting zero – you’ll want to monitor your various accounts. Check for possible charges – for things like subscriptions or annual dues – about which you may have forgotten. Stay on top of things so you’ll know if any surprise charges hit your account.

Congratulations on paying off that first credit card debt! Now, on to the next one! Blessings.

We have a 15-year fixed-rate home mortgage – and we are working hard to pay it off in less than 10 years.

We purchased our home in February of 2010. The original mortgage term of our our loan was 180 months, with the loan due to be paid off in March of 2025. So far, we have whittled away 7 months from that date.

Here’s what we do –

Each month we make our monthly mortgage payment. We do so via an auto-draft from our online banking account.

Then, we make an extra, principal-only payment. We write (type) the words “apply to principal” in the memo section of the check. Our mortgage company knows to apply this payment towards our principal – and to not treat it as a prepayment for the next month.

(Once in a while, we will combine these payments into a single check – or withdrawal from online banking – but I prefer 2 separate transactions, so that I can more easily keep track of our extra payments.)

Throughout the month, should we make any extra money – or find that we do not spend any budgeted funds – we’ll take that money an send it to our mortgage company, as an additional principal-only payment. Often, we’ll have months where we send 2 or even 3 principal-only payments.

I have seen all kinds of formulas for reducing a mortgage, including bi-monthly payments, or adding an extra payment at the end of the year. These definitely work – but for us – our simple system works. We make our payment – then we make a principal-only payment (usually just a few dollars) – then we work hard to make (or save) extra throughout the month – and we send that.

Our approach is hands-on and keeps us focused on this long-term goal. (We are paying off our mortgage in addition to saving for retirement and kids’ college.) Blessings.